It’s a bold title but I have been saying it for last few years and Michael of Benchmark Capital reminded me of my feelings. Recently I invested in simple little company called Wallstrip. I didn’t invest with the hopes of making millions or being part of the next YouTube. I invested to learn more about Web 2.0 and the internet. I wanted to learn how advertising works and how a site or a company is developed with real money and real thought behind it. I have neither invested in this site, so I figured I should take part in the evolution of a site in hopes of learning a little more about the web. Over the past few months I have learned the following.

1. RSS takes away viewers from the source site:
If you are trying to develop a site you obviously want people to visit that site. People who get your RSS feeds are less likely to visit your site because they get all the information in a nice little organized package. No comments, no feedback, no interactivity. With the sheer quantity of good blogs out there, people need an organized cliff note version of each blog to have any chance of reading all of blogs they enjoy. Again, most never make it to the site. It take effort to get back to the site. People don’t like effort.

2. So do Widgets
Think about this logically. You want people to watch videos that you create. You create videos to make money. Then you give away these videos via widgets that others can post on their blogs. Unless you have ads in those videos, you don’t make a dime. This strategy works for YouTube because they get all the content for free but when you pay for the production, this method is a much tougher way to make money. The only way I believe this makes sense is that after the video plays you are automatically sent to the source site. Nobody does this because the bloggers wouldn’t post your video if it forces them to leave the site. Bloggers get to boost traffic to their site and everyone enjoys the content and the creater of the content gets zip.

4. RSS Feeds take away from your source of income.
In order to provide the free content, sites have to advertise. You make much less on RSS feeds than you do at the home site.

Web 2.0 brings the content to the reader but doesn’t bring the reader to the content. In order to make money or just break even, a site needs those viewers to come home. With this idea, it brings me to divide the internet into two types of sites. Interactive, community type sites and news and information sites. In the trading blog world for example , Trader Mike has 4125 RSS readers and 11 comments on yesterday’s stories. He does a great job of providing info but it is not much of a community. Fly on Wallstreet on the other hand, is more of the community type site. He probably has a quarter of the readers but they all come to the site and interact daily. He usually has 50 or more comments on most days. Two completely different sites but both effective. In the long run a community type site will make more money, that is unless someone pays you for your content.

I think the business model of (disclosure: I work with Heavy) is the model of the future. No RSS feeds, no widgets just a simple model. First, develop content or gather other’s original content (for the most part) . Pay people a nominal fee to bloggers and webmasters to send their viewers to their site via links or embeded video. They, in turn, sell advertising to large companies who will pay good money for a large number of viewers. Bloggers love it because they can make a little extra money and Heavy gets people to come to their site. They are also smart because they know what advertising works for them. “Reminder” advertising. New movies, new video games, and other awareness type ads are the ads usually run on their site. Knowing what type of advertising to run is a whole other article in itself.

In summary, Web 2.0 sounds great. Widgets, feeds, and all the compilers you could ever want to deliver the web. In the long run this will not work unless the the readers get delivered back home to the source site. I see a future of reduced RSS feeds and less free content widgets and more of a future of subscriptions. I see a future of $3 a month for a feed of techcrunch or free if you visit the site.

Disclaimer: This is no way represents the feelings of the owners of Wallstrip or anyone else but myself. It is merely an opinion.